LNG Canada final investment decision 18 to 24 months away, CEO says. Has concerns about air shed, pipelines

LNG Banada
The LNG Canada site at the old Methanex plant in Kitimat, April 29, 2014. (Robin Rowland/Northwest Coast Energy News)

The final investment decision for the LNG Canada project is 18 to 24 months ahead,  Andy Calitz, CEO LNG Canada said Wednesday.

Calitz said that the project must go through a series of what are called “stage gates” before the respective corporate boards of the partners make that decision. Calitz said the project has already completed three stages, identifying the project, testing the idea, selecting what exactly the proponents are going to do. “Then there is the so-called design stage when all the design experts come in. We are hundred per cent certain we are tackling the next phase.” It is when the design phase is complete and then depending on world market conditions, that the final investment decision will be made.

Caltiz also pointed to one reason that while the LNG Canada project is moving ahead slowly,it appears to be moving faster than the rival Chevron-Apache Kitimat LNG project. That’s because the four investors in the LNG Canada project, Shell, PetroChina, Mitsubishi and KoGas (Korea Gas) are the customers, shipping their own product via the proposed TransCanada Coastal Gaslink pipeline, to the jointly owned terminal that will be built on the old Methanex site in Kitimat.

Caltiz’s comments came at a Vancouver news conference called to announce a joint venture agreement between the four partners. Under today’s agreement, Shell has increased its stake in the project to 50 per cent from 40 per cent; PetroChina will hold 20 per cent and each of Kogas and Mitsubishi Corporation holding 15 per cent. PetroChina and Shell increased their holdings by buying from the other partners.

Calitz said, “They each bring their own gas, they each put their own capacity in the pipeline to be transported by Transcanada, they together own the energy plant, then they lift the cargo in the same proportion, taking in to their own potrfolios, for every cargo that is produced, say for every 100,000 cubic metres, 15 will go Kogas 15 to Mitsubishi 20 will go Petrochina and 50 will go to Shell.”

One reason, along with the volatility and uncertainty of the liquified natural gas market that the Chevron Apache Kitmat LNG project appears to have stalled is a lack of customers. Kitimat LNG has said it is looking for equity partners similar to what was said today about the LNG Canada project.

Air shed

Asked a general question about environmental concerns, Calitz singled out local concerns about the air shed quality in the Kitimat valley and similar concerns up in Prince Rupert, saying, “We are at all times very sensitive to our environmental impact… In the case of the airshed around the LNG plant, it is being quantified, it;s being looked at cumulatively in Prince Rupert, in Kitimat. We also make sure that we work with the government about the sensitivity of air shed impact to the communities of Terrace and Kitimat. I can confirm your point it is high on our agenda. We understand the issues we all developed energy projects before and will continue to be vigilant.”

He said there were three main concerns that would affect the final investment decision: “Where does the Asian gas price go? Two will we have enough labor and what will the labor rates and labor productivity be and three between the various companies that have a lot of experience in Canada specifically TransCanada pipelines into Kitimat, and the other pipeline company going into Prince Rupert, we need to get those pipelines through the mountains.”

While it may be reading too much into one statement, it appears that LNG Canada and its partners are taking a more careful approach to pipeline construction than the Enbridge Northern Gateway project where that company was always certain its plans for crossing the rugged northwest BC mountains would yield few problems.

Russia crisis

The other major factor governing any decision on LNG plants in British Columbia is the volatile marketplace.

Reporters at the Vancouver news conference asked Caltiz about reported talks between China and Russia where Russia, now facing economic sanctions for its actions against Ukraine, would ship natural gas to China and if that would affect BC plans to export LNG to China.

“One can always draw linkages between any two subjects but I would say the linkage is between very weak and non existant,” Calitz said. “The closeest that anyone can come to a linkage is do the events in Europe and Ukraine increase the likelihood of a major pipeline between Russia and China, that’s for Russia and China to decide, but apart from that very very weak linkage.”

That state of prices remains a concern among reports that several Asian nations including the giants India and China plan to form a sort of buyers club, to drive down the high price of natural gas, which in Asia is a percentage of the price of crude oil, while in North America, market conditions have driven the price of natural gas much lower.

“There is a very active daily debate about prices paid for LNG in Asia. That debate, I am sure, will continue as long as the Henry Hub [the North America market price] is at $4 and Europe is at $8 and Asia based is somewhat from 12 to 18 dollars, depending on whether its contract or spot.

“If you ask is that of concern, then every project here will be affected by changes in price, whether the price goes up or down. will impact the final investment decision and it will impact in the way say the Pacific Northwest or the Kitimat LNG project.

“We as an energy project in British Columbia, like all other energy projects, like even from East Africa are looking at production costs and what the Asian prices are. So by 2015, what happens to that price and what happens in those negotiations will feature in the decisions of all the players.”

In a prepared statement, Calitz said,”“While we are in the early evaluation process and a decision to build the project is still a while away, this agreement reinforces our commitment to developing an LNG facility in British Columbia and allows us to proceed with the next steps in our project assessment, We will need to continue to work closely with the provincial and federal government to ensure that the project is economically viable, as well as working closely with First Nations, the local communities, and regulatory agencies, and move forward on a number of commercial agreements and contracts. We remain cautiously enthusiastic about the potential opportunity in B.C. and look forward to exploring it further.”

Premier Christy Clark, who made a brief appearance at the news conference before leaving to a prepare for another sales trip to Asia, was more optimistic, saying: “The private sector doesn’t make billion dollar investment decisions if they don’t think there isn’t going to be a return on it. It’s not for me … to determine what the market looks like, it’s the private sector that does that and I think the answer to them is you would not see those major companies taking the next step signing a joint venture agreement today if they didn’t think there was a market for BC gas.

“The other advantage that BC has that we will never sacrifice is our reputation as a dependable, reliable, honourable trading partner. When people do business in British Columbia on natural gas, they know we won’t play politics with them.They know we will keep our promises about where the tax levels will be and how they’re going to be treated as trading partners. That is a tremendous advantage for us in an unstable world.”

 

Temporary foreign workers

Asked by a reporter about LNG projects using temporary foreign workers, Clark replied. “The thing about temporary foreign workers is that temporary workers should come for temporary jobs, And in the process of building these huge facilities and pipelines with peaks in construction that we will not be able to meet within British Columbia or even Canada. There’s no question about that.
“Our view is very much British Columbians first, and the way to do that is to make sure people have all the skills training that they need to take advantage of those jobs, second reach out to the rest of the country and then third work with the unions and other organizations when needed to support temporary foreign workers coming in.

“We’ve had remarkable consensus with the trade unions, recognizing the need for some temporary foreign workers at some point in the construction of these projects. That’s why we’ve gone about planning it so carefully because we want to make sure when we will need workers in what skill set in what month and what years. We’re really breaking it down so we can be sure we have exhausted British Colunbia’s potential to fill those jobs before we start to look across the country or around the world.”

LNG Canada signing
LNG Canada joint venture agreement signing cermony in Vancouver, April 30, 2014, left to right, Jorge Santos Silva, Executive Vice President Shell Upstream Americas Commercial, Bi Jingshuang, Director – Legal Department of China National Oil and Gas Exploration and Development Corporation (CNODC), representing PetroChina, Andy Calitz, CEO, LNG Canada, Hiroki Haba, Vice President, Natural Gas Business Division, Mitsubishi and Jongkook Lim, Vice President, LNG Business Department, Korea Gas. Standing wathc are Christy Clark, Premier of British Columbia and Rich Coleman, Minister of Natural Gas Development. (LNG Canada)

Projects on the go

The news release listed the many LNG projects under way from the four partners.

Shell currently has ten LNG projects in operation with approximately 26.1 million tonnes per annum (mtpa) operational LNG capacity, in nine countries, and two projects
with an additional 7.5 mtpa under construction. Shell is also one of the largest LNG vessel operators in the world, with interests in around a quarter of the LNG vessels in operation.

Phoenix Energy Holdings Limited (an affiliate of Petro-China Investment (Hong Kong) Limited) (“PetroChina”) is China’s largest oil and gas producer and supplier, as well as
one of the world’s major oilfield service providers and a contractor in engineering construction. PetroChina officially launched three LNG projects in June 2004, two of
which started operations in the first half of 2011.

Kogas Canada LNG is the world’s largest LNG importer. As the nation’s sole LNG provider, KOGAS currently operates three LNG terminals and a nationwide pipeline network, supplying natural gas fromaround the world to power generation plants, gas-utility companies and city gas companies throughout the country.

Since pioneering the first LNG import to Japan from Alaska in 1969, Mistubishi handles 40 per cent of Japan’s LNG imports and has successfully built a portfolio of LNG export investments across Australia, Indonesia, Malaysia, Brunei, Oman, Russia and North America.

With the joint venture agreement, the group has incorporated a new federal corporation, LNG Canada Development Inc. The project’s corporate offices will continue to be located in Vancouver and Calgary, with the project office based in Kitimat.

Although pegged as a “major milestone” in the development of LNG Canada, the Kitimat social media rumour mill was correct in speculation Tuesday that the news conference concerned a corporate name change and sale of assets.   The event was probably more a kickoff for Christy Clark’s upcoming tour of Asia.

 

Aurora LNG applies to NEB for Grassy Point export licence

CNOOCNexenLogo125Aurora LNG, a partnership headed by Nexen, the Canadian branch of CNOOC, one of China’s largest energy companies, has applied to the National Energy Board for an export licence to ship 24 million tonnes of liquified natural gas over 25 years to Asian customers from Grassy Point near Prince Rupert.

Two Japanese companies, Inpex Corp and JGC are partners with CNNOC in the joint venture.

The application comes just two weeks after the BC government  gave Aurora “the right to pursue long-term access to Crown land” at Grassy Point, which is just south of the border with the Alaska Panhandle.

While the NEB is expected to grant the export licence with little difficulty, the company still has to go through environmental assessment and make a final investment decision.

So far none of the LNG projects in northwestern BC, including three in Kitimat where the NEB has already granted export licences, have been given that final go ahead from the boards of their parent companies. Tne NEB is also considering five other applications for LNG export licences.

At the time BC granted Nexen the potential tenure at Grassy Point, CEO Kevin Reinhart said: “Through project assessment and stakeholder consultation we are committed to examining the potential to build a best-in-class LNG facility – one that creates jobs, delivers lasting economic and social benefits and is developed with the environment top-of-mind.”

According to the BC government news release:

  • The agreement is for the northern part of Grassy Point, which covers 614.9 hectares of land, plus foreshore land equalling 158.7 hectares.

  • Aurora LNG will be examining the viability of constructing a liquefied natural gas (LNG) plant and export terminal at this location.

  • Under the agreement, Aurora LNG will pay $12 million to the Province upon signing the sole proponent agreement. Another $12 million will be paid by Aurora LNG on, or before, the first anniversary of the agreement, as long as the proponent wants the arrangement to continue.

  • The right to acquire the land for construction or long-term use remains a matter of future negotiations. If the land is acquired by Aurora LNG, the $24 million submitted to government will be subtracted from the final sale price.

Nexen’s plans include a natural gas liquefaction plant, LNG storage and a marine terminal to handle LNG tankers capable of carrying between 210,000 and 217,000 cubic metres of gas. The initial plans call for two trains with a possibility of two more if conditions in the always volatile LNG market warrant.

Nexen is in talks with a number of “major pipeline providers” and no pipeline route has been announced.

It is expected the first LNG shipment from Grassy Point would occur sometime between 2021 and 2023.

CNOOC-Nexen deal makes “absolutely no sense” Cullen says, fears Beijing will dictate Canadian resource policy

Skeena Bulkley Valley MP and NDP House leader says the Harper government’s approval of the takeover by CNOOC, the China National Offshore Oil Corporation of the Alberta-based energy company, Nexen Inc.  makes “absolutely no sense.” Cullen also told northwest reporters in an end-of-year news conference that if the Conservatives continue their present policies, “Beijing will be directing Canadian energy policy and what we do with natural resources.”

Cullen said the approval of the CNOOC Nexen deal was a major development: “The other big news was the reluctant, but enthusiastic approval of the CNOOC Nexen deal; this is the purchase of by the Chinese state-owned company CNOOC. Nexen [is] the 12th largest group in the oil sands, which is also meant to be the source for the Northern Gateway pipeline.

“Stop if anyone thinks this is a coordinated conspiracy to turn the oil sands into an entirely Chinese government owned project.

“[It is] very, very unpopular in Canada, very unpopular in Alberta and the government did this very strange thing where they approved the deal and then said never again because the net benefit test is not being met and that it’s bad for Canada but this deal can go ahead.

“It makes absolutey no sense whatsoever. This combined with the agreement with China, the Foreign Investment Protection Agreement, it now allows the Chinese government to buy up as many oil sands leases as they want. This will very much put a chill on any government in Canada, provincial or federal from introducing laws that hurt Chinese interests because we are now open to lawsuits.”

Cullen was also asked about the PetroChina’s purchase of a stake in the Browse LNG project in Australia. (Cullen’s news conference took place before the announcement that PetroChina had bought into an Encana project as well) and the prospect for LNG projects at Kitimat and Prince Rupert.

“I don’t think the market has the capacity for all of these projects to go ahead and that’s coming from people who know a lot more about LNG shipping than I do.

“I don’t think we have the carrying capacity in the northwest for all of them to go ahead. It will be the first two or three through the gate that will be successful and I think there’s some concern from folks when they look at the whole sweep of projects being proposed what the total shipping traffic would be and what the impact would be just in general. I can see people’s hesitation.

“We’ve been trying to work with those companies so they are out and meeting with the communities. Like any industry there are some companies that are quite open and good at consulting and actually accommodating peoples’ concerns. There are others are not so good. So we’ve been trying to encourage everyone to get to the gold standard and know that they need a social licence to operate in the northwest and if they don’t ahve it, it’s very difficult for the project to get off the ground.

Wild, wild west

“When we don’t have good laws in Canada talking about saying what foreign state control over our natural resources can and can’t be, it’s the wild, wild west. So as this thing goes along, the concerns will become more and more clear that the interests being served will not be Canadian.

“To give the Chinese credit, they’re absolutely up front and explicit about this. To the Conservative government’s complete shame, they don’t seem to care. Beijing will be directing Canadian energy policy and what we do with natural resources.

“All of this to win the government a little bit of favour with the Chinese is just maddening to me.

“Again I recall the old line the Conservatives used to use in elections ‘we’re going to stand up for Canada.’ Wow, did that ever turnout to be an outright lie.

So it’s frustrating and its very worrisome. This isn’t a right-left thing, I’m hearing from a lot of conservative commentators and folks back in the northwest who are very strong supporters of Conservative politics that this not their kind of conservative government, they don’t even recognize it any more.

“This happens to prime ministers from time to time. They get sucked in to the lobbyists and the global circuit and really start to lose touch with what Canadian values are. I think, unfortunately that’s what happened to our prime minister.

Related Links

Nexen news release

Norton Rose law firm guidelines for State Owned Enterprises in Canada

PetroChina in multi-billion dollar LNG buying spree in Canada and Australia

PetroChina went on a multi-billion dollar natural gas buying spree Thursday, Dec. 13, 2012, picking up shares in operations in both Canada and Australia.

In Canada, Encana, one of the partners in the Kitimat LNG project, signed a joint venture arrangement with Phoenix Duvernay Gas, a wholly owned subsidiary of PetroChina, to explore and develop Encana’s extensive undeveloped Duvernay naturgal gas holdings in west-central Alberta. According to an Encana news release, Phoenix will gain a non-controlling 49.9 per cent interest in Encana’s approximately 445,000 acres in the Duvernay play for total consideration of C$2.18 billion.

Hours earlier, PetroChina agreed to pay $1.63 billion for BHP Billiton’s 10 per cent share for an Australian LNG development, known as Browse, that like the KM LNG project in Kitimat had been delayed by the uncertainty in the LNG market. The other partners in the Browse are Woodside Petroleum, Chevron Corporation, Royal Dutch Shell and BP.

Encana says the PetroChina/Phoenix investment is significant for the Duvernay, which Encana describes as a “liquids rich play” with potential for natural gas, butane and oi development.

THE Encana release quotes Randy Eresman, Encana President & CEO. “A transaction of this magnitude keeps us on track to create a more diversified commodity portfolio and maintain our balance sheet strength. It is a strong endorsement of Encana’s position as a reliable long term partner.”

The release also quotes Zhiming Li, Phoenix’s President & Chief Executive Officer, as saying The Duvernay project will combine Phoenix’s integrated upstream and downstream capabilities and financial resources with Encana’s proven resource play hub expertise. This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio. Encana is our ideal long term partner for the development of our future natural gas business.”

The company goes on to say:

Having entered into several joint venture transactions in 2012, these types of arrangements have become an important part of Encana’s business model. Joint ventures help the Company to achieve a highly efficient deployment of capital throughout its vast exploration and development asset base as Encana transitions to a more diversified portfolio of commodities.

Significantly, the Encana release, while talking about LNG development and export, it makes no mention of the Kitimat KM LNG project, instead looking south to Louisiana.

These relationships have the potential to increase natural gas demand as a number of Encana’s partners are actively exploring opportunities to export liquefied natural gas (LNG), while some are industrial consumers looking to transition to natural gas as fuel for their operations. An example is a recent agreement with Nucor Energy Holdings (Nucor) which is designed to support Nucor’s increased use of natural gas for its facilities, such as its direct reduced iron facility currently under construction in Convent, Louisiana.

Reports say PetroChina paid a premium price for the Australian Browse natural gas project, anticipating that if it comes on stream, as planned in 2018, the current glut in the natural gas market will have eased and once again LNG will be a seller’s market.

The Browse project at James Price Point on the north-western coast of Australia is facing similar opposition to projects in British Columbia, including some of the site’s aboriginal landowners and from some environmental groups.

The opposition to the Australian Browse project, according to reports,  reflects a split in the local aboriginal community.  While Wikipedia says that 60 per cent of the local aboriginal people voted in favour of the project, there is also fierce opposition, according to the Australian Mining Journal, which reported in 2009:

[A] number of Traditional Owners, as part of the Save The Kimberley organisation, issued a statement which said there is not unanimous support for this site.

In a signed declaration, Traditional Owners have affirmed that they do not support the imposition of an industrial site on their country and will legally challenge the authenticity of any agreements entered into by the Kimberley Land Council supporting the proposal.

The statement said that “…many local Indigenous people are disgusted by the apparent abandonment of the established process put in place by the previous State government. Concerns include the threats made earlier in the year by the Premier regarding compulsory acquisition of land and the pre-empting of the Joint State and Commonwealth environmental and cultural assessment process via announcements by Woodside and the Premier.”

 

A company called Woodside Petroleum, which leads the LNG venture wants to build the “greenfield” onshore terminal but is facing competition from Shell’s proposed offshore floating LNG “given the land access challenges and soaring development costs in Australia,” even though Shell also has a stake in the Browse project.

The Encana PetroChina deal comes a week after the Conservative government approved the takeover of Nexen by the China National Offshore Oil Corporation (CNOOC) and the take over by the Malaysian state oil company Petronas of Progress Energy. Petronas and Progress Energy have announced plans for an LNG export facilty at Lelu Island, opposite Port Edward, near Prince
Encana spokesman Jay Averill told the Globe and Mail the Duvernay deal will not need approval from Investment Canada because PetroChina will only gain a 49.9-per-cent, non-controlling share of the specific Encana assets.

In Australia, in October, CNOOC bought a stake in Queensland Curtis LNG from British energy company BG. BG, in partnership with Spectra Energy has also announced plans for an LNG facility at Prince Rupert 

Related links

Petroleum Economist
PetroChina pays premium for Browse stake

Calgary Herald

PetroChina inks $2.18B deal with Encana Joint venture to invest $4 billion to develop Alberta Duvernay